ALBERTO TORRES NAVARRO COMPETITIVE STRATEGIES IN FRAGMENTED INDUSTRIES

An important structural environment in which many firms compete is the fragmented industry, that is, an industry in which no firm has a significant market share and can strongly influence the industry outcome. What makes an industry fragmented? Absence of economies of scale or experience curve, high transportation costs, high inventory costs or erratic sales fluctuations, no advantages of size in dealing with buyers or suppliers, diseconomies of scale in some important aspect, high transportation costs, high inventory costs or erratic sales fluctuations, no advantages of size in dealing with buyers or suppliers and diseconomies of scale in some important aspect Overcoming fragmentation Overcoming fragmentation can be a very significant strategic opportunity. the payoff to consolidating a fragmented industry can be high because the costs of entry into it are by definition low, and there tend to be small and relatively weak competitors who offer little threat of retaliation
COMMON APPROACHES TO CONSOLIDATION.

Overcoming fragmentation is predicated on changes that

unlock the fundamental economic factors leading to the fragmented structure. some common approaches to overcoming fragmentation are as follows: create economies of scale or experience curve, standardize diverse market needs, neutralize or split off aspects most responsible for fragmentation, make acquisitions for a critical mass and recognize industry trends early INDUSTRIES THAT ARE STUCKS So far i have concentrated on industries whose fragmentation is rooted in industry economics and on ways of overcoming fragmentation that address these root causes. yet a critical point to recognize for purposes of strategy is that many industries are fragmented, not for fundamental economic reasons, but because they are "stuck" in a fragmented state. industries become stuck for a number of reasons. Coping with fragmentation In many situations, industry fragmentation is indeed the result of underlying industry economics that cannot be overcome. There are so many types: tightly managed decentralization, "formula" facilities, increased value added, specialization by product type or product segment, specialization by customer type, specialization by type of order, a focused geographic area, bare bones/no frills, and backward integration Potential strategic traps The unique structural environment of the fragmented industry offers a number of characteristic strategic traps. There are so many characteristics: seeking dominance, lack of strategic discipline, over centralization, assumption that competitors have the same overhead and objectives and overreactions to new products Formulating strategy. Collecting the ideas that have been discussed earlier, we are in a position to outline a broad analytical framework for formulating competitive strategy in fragmented industries